Sunday, November 26, 2006

Luxury Car Dealerships

An article in USA Today describes the luxury car market and the lengths that dealerships go to get people into the dealerships:

At Fletcher Jones Motorcars, customers stroll through a gallery of Mercedes-Benzes, linger at the cappuccino bar, tap balls on the putting green or go for a pedicure. A couple of blocks away, Newport Lexus boasts marble fireplaces, Oakley and Tommy Bahama beachwear boutiques — and a flat-screen television, tuned to ESPN, of course, mounted above the urinal in the men's room. . .

Built at a cost of $75 million, Newport Lexus didn't hold back when it opened in July. It has lounges with big-screen TVs, a sandwich counter, video game room and boutiques all aimed at making customers want to stick around. "When people have their car in for servicing, I don't want them to leave," says sales general manager Scott Brewer.

Why would these dealerships go to such lengths? What is interesting is how much the dealerships are spending on all of these amenities that aren't directly related to their main product, which is cars. Also, what do all of these attempts at differentiation tell you about the market structure in the car dealership market?

(Source: Sarah O.)


Anonymous said...

In my family, we own three cars, a Mazda, a Dodge, and a Volkswagen. My dad insists with all three that the dealership is a terrible place that doesn't really care if you need help for they simply want to take your money and give you nothing in return. Now, while he may never be convinced even with a sandwich bar and flat screen televisions, many people could find the dealership a more pleasant place to be even if it means taking up more of their time. There will be people who won't be swayed by the tactics, and there will be people who already took their cars to the dealer for repairs, but this is the market for customers who sit on the fence between the mechanic down at the gas station and the luxury of these dealerships. This shows us that the market structure of the car dealership market is monopolistic competition because their are many producers and many consumers and the products are differentiated.

-Kate Vanderlip

Anonymous said...

These dealerships go to such lengths and such expenses on amenities that arn't related to their product to keep consumers coming back to their dealership. With all the TV's, sandwiches, and pedicures dealerships are trying to gaurentee a return visit from that consumer. People could have things wrong with their car and can find much cheaper places to get it fixed than the dealership. But at the dealership they get specail treatment, and that is what keeps them coming back. These consumers can also buy more cars from this certain dealership that they go to, and all the pampering of that customer would be worth it since they sold them an overly priced car. So the dealerships in a since sucker the consumers to keep coming back to their dealerships and making them money.

Taylor Pike

Anonymous said...

I agree with what taylor said. These dealerships are going to such great lengths in order to differentiate their dealership. All luxury cars are becoming substituees for one another, so Lexus is trying to differentiate its product by providing a luxurious experience at the dealership. It will allow for its product to be considered different, so Lexus can then raise its price because there would not be as many substitues. Also, the number of people who will return to the dealership will be much greater because who would want to miss the big football game while they are at the car dealership?

Anonymous said...

sorry, the one above was Schulz